Middle East revolutions and the fate of the petrodollar

As revolution fans across the Middle East, there are reams of commentary on the reasons behind the spectacular conflagration. Some are sage, such as Shahid Alam’s insightful analysis of the “dignity deficit” that the Muslim world suffers from. Others verge on doomsday comic, pinning the blame on unruly natural causes than self-evident political ones, such as Paul Krugman’s warnings of natural disasters and their impact on world food supply. Even Hillary Clinton, who is usually so serenely autocratic, struck a somber note in a recent Munich visit, declaring that “the status quo is not sustainable.”

Certainly, things will not remain the same. This much is inevitable. However, the motor driving the Middle Eastern revolutions lies elsewhere from long-suffering nature or the shadowy militants that Muammar Qaddafi of Libya or the Khalifa family in Bharain are so desperately trying to pin the tail on. If we really want to hear the Phantom singing in the basement of the Opera House, we should hearken to the tale of the US petrodollar, which has bankrolled the financial and military extravagances of US Empire Inc. from the 1970s. The Vietnam War brought on a hefty debt crisis (yes, it is expensive to kill villagers in a far off land, as Afghanistan has proven). Under the pressures of Vietnam, combined with the “greed is good” hedonism of the emerging neo-conservatives, Nixon’s government entirely abandoned the gold standard and pinned the dollar’s value on the petroleum guzzling up from Middle Eastern soil.

Thus, the petrodollar was born and life was good. As long as the US leveraged control over the Middle East’s glistening black crude, and the worldwide supply and distribution networks, the Treasury could print dollars without needing to back it up with gold reserves, jobs, trade exchanges, or other material indices of economic health. The petrodollar meant that oil had to be bought and sold in US currency, forcing countries to buy dollars in order to purchase the energy demanded for agriculture, transportation, industry –” really, every facet of modern life. As countries worldwide were obliged to purchase dollars for oil, the dollar itself became the US’s biggest export. The Almighty Dollar indeed!

Petrodollars bound the world into the US financial regime, making it impossible to resist what John Perkins calls “economic hit-men” from knocking on countries’ doors and selling “neoliberal reforms” that sold off the country’s assets under the guise of sacral privatization. Modernity came to the third world as a poisonous martini, the flush of dollars in their economies balanced with the bitter after-taste of servitude.

What monopoly over oil gave the US was a credit-card without any limits. The US could simply print the dollars for OPEC oil, while other countries had to trade their goods, services, and resources to the US for the dollars to buy crude. This enabled the US to run on deficit spending, engaging in ballooning consumption under a debt that was essentially shunted on to other countries in Empire Inc. As Wall Street speculated on their control of the world currency flow, the arms manufacturers reaped benefits by the political instability fostered in the Middle East. As Henry Kissinger noted with typical Lord Voldemort flair, “who controls the energy can control whole continents; who controls money can control the world.”

The US economy was a gasoline fueled Disneyland threatened by two specters. First was Peak Oil, the peak production point of existing oil fields in Africa and the Middle East, after which production would decline in the face of growing demand. The second was posed by movements for political and economic independence in the energy producing countries, who had the temerity to believe that they had authority over their natural resources. Case in point –” the 1979 Islamic Revolution in Iran, which significantly disturbed US dominance of Persian Gulf Oil. Iran’s move towards energy independence has actually attracted a significant customer base, including the EU countries, who publicly kowtow to the US but are privately exploring options for breaking the petrodollar.

In fact, economist William Clark believes that US belligerence towards the Iranian nuclear program is a cover for the deeper threat posed by Iranian oil to the gluttonous petrodollar. “[D]espite the ongoing subterfuge,” he writes, “the US and the UK establishment are far more concerned about Iran’s upcoming internet-based oil exchange, or “oil bourse,” which over time could undermine the petrodollar system, and thus the global supremacy of the US dollar. The decline of the petrodollar means the shift to a multipolar world, the crumbling of American hegemony.

Other threats to the petrodollar abound. Besides Iran, Russia has emerged as a major energy trader, vaulting its oil reserves and access to Central Asia’s fabulous gas fields into political influence. Russia has quietly worked on the sidelines to undermine the exclusiveness of the petrodollar and shift to a basket of currencies for oil trading. The EU for its part has tried to convert the euro into the world’s reserve currency for oil trading, only to be stymied by the US. In addition, Brazil, Russia India, and China (BRIC) are creating an alternative trading block to the EU, one capable of promoting another reserve currency. All of these “big four” developing countries are significant players in the world’s emerging energy routes.

Significant competition, to be sure, but has the US game plan for defending the petrodollar’s role been at the world’s energy-economic nexus? Given the fact that Peak Oil is widely believed to have already hit Saudi Arabia and other oil producing states, the US is racing against time to cement over its feet of clay by expanding into the Central Asian gas fields. Originally, the race was determined by US’s ability to construct the TAPI gas pipeline across Afghanistan, Pakistan and India, before the Middle Eastern Oil fields became quiescent. The gas fields of Kazakhstan and Azerbaijan are earmarked as the substitute for Arabian and Persian Gulf energy. However, the cost of destabilizing Pakistan and Afghanistan and subjugating populations along the pipeline route has proved rather steep.

Not withstanding the US media’s broadcasted epiphany of American power “waking up” to the democracy as an inalienable right of the Arabs, the recent developments are hardly good news for US economic survival. The fact that black crude underwrites the free-floating US economy makes clear that any disturbance to the global oil geography signifies an existential threat for American empire. We can track White House reactions to sound out the scale of the crisis. While the Tunisian Revolution evoked Obama’s noble sloganeering, Egypt began to splotch his pristine white shirts with sweat. The Suez Canal after all, is still the heartline of the global oil transit system. Bahrain, a major oil producer and a strategic piece of real estate at the mouth of the Persian Gulf, began to elicit stammering from the White House Press Secretary. Libya, the largest oil producer in Africa, has accelerated this palsy into a terse silence, occasionally broken by irrelevant comments about the need to “stop violence.”

The US’s refusal to take the military option itself in the current revolutions is perhaps an overt sign of empire’s critical weakness. Before, the US unhesitatingly played the military card at the slightest hint of a threat to its Middle Eastern oil properties. After all, the Iraq War was sparked by Saddam Hussein’s decision in 2000, to switch to the euro as Iraq’s energy trading currency. George Bush’s triumphal mandate for war contrasts with the wavering and indecision demonstrated by the Obama White House caught between its rhetoric and the material need to dominate a geography that has bankrolled its extravagant prosperity over the past six decades. US power is over-stretched, trembling on the verge of implosion, and the political leaders know it too.

The practice of dangling democracy before the Arab world as both a reprimand and a fantasy yanked out of reach by US-funded dictators has paid back a somber coin. The revolutions came at the worst possible time for empire, when a diversifying energy landscape is threatening the US’s role as prime energy controller and by extension, the very financial system guaranteeing the Almighty Dollar. And then the bill for its $14.13 trillion dollar deficit will finally be stamped and addressed to a US that is already taking stock of its derelict house.